Kodak's Mobile Moves
By Michael Grebb, Thu Feb 07 00:00:00 GMT 2002

Kodak isn?t relying on celluloid to carve out its place in the future.

It was strange enough when Eastman Kodak Co.— the 113-year-old pioneer in film photography — started selling digital cameras, but its spin-off a new company to facilitate the wireless transfer of digital images confirmed definitively that Kodak isn’t relying on celluloid to carve out its place in the future. In fact, the formation of Appairent Technologies has been seen as the first of many such moves to capitalize on internal Kodak research that might otherwise flounder within the bureaucracy of a massive corporation.

Kodak appears convinced that transferring various patents and other research to a nimble startup will pay huge dividends. “We were developing this wireless stuff to use in cameras,” explains a Kodak spokesman. “But it just became clear that we had some technology with broader applications. The way to do that is in a venture in which we could share the risk and make sure we can make a profit at it.”

Exactly what fruit Appairent will bear from Kodak’s research is still unclear. The company, which like Kodak will base its operations in Rochester, N.Y., has plucked executives from Kodak and other companies, even tapping Trillium’s “entrepreneur-in-residence” Ted Wurzburg to become CEO. But Appairent has been vague on the details, other than to say that its patents and intellectual property facilitate the fast wireless transfer of images and high-speed streaming of audio and video between a range of devices.

In essence, Appairent wants consumers and businesses to throw out their Ethernet cables and fling multimedia files over short-range wireless networks at speeds that could reach up to 55 megabits per second under optimal conditions.

Just the same, Appairent’s goals are realistic enough to attract an undisclosed investment from The Monroe Fund, a private venture capital fund managed by a unit of the Rochester-based Trillium Group. With venture capital for tech startups all but dried up in the U.S., the investment certainly has turned heads. “The technology has to be important because Trillium isn’t going to invest good money in a company that doesn’t have good technology,” says Larraine Segil, a mergers-and-acquisitions expert and partner at Los Angeles-based The Lared Group. “Kodak needs to start doing this more and more. They are good at developing technology.”

In fact, Kodak has been working on its wireless technology for quite some time, waiting for the right moment to spin it out into a separate venture capable of partnering with others and finding investors. “The underlying technology had been incubated and seed-funded within Kodak for about five years,” notes Dennis DeLeo, general partner at Trillium Group and manager of the Monroe Fund.

The standards

For the wireless industry, that could mean a significant shakeup of existing standards that are only now starting to take hold. That’s because Appairent won’t use either the 802.11a or “Bluetooth” wireless specifications, opting instead to focus on the 802.11b, which tops out around 11 Mbps, as well as the far less developed 802.15 specs, which can yield those blazing 55 Mbps speeds.

DeLeo says 802.11a requires too much work from the user, who must log on to a network, and that both specs are far too slow to convince users to ditch their cables and go wireless. “[Appairent’s technology] plays to some of the strengths of Bluetooth,” says DeLeo. “But unlike Bluetooth, the speeds are much faster.” Christine Loredo, a senior analyst at the Strategis Group, says 802.11b more often yields only around 3 Mbps (still much faster than Bluetooth) and notes that 802.15 hasn’t gained much momentum among vendors because of vexing interference problems. “It’s kind of being pushed away,” she says. “We don’t see much future for it.” Wurzburg, however, says Appairent will continue to focus on 802.15 as well as 802.11b.

In addition, the Bluetooth spec — which operates in the same general unlicensed spectrum band as 802.11b, around 2.4 GHz — has certainly gained momentum. Earlier this month, dominant handheld giant Palm, Inc., introduced its Bluetooth Software Developer Kit to spur more applications using the spec. “They’re just going more for the wireless LAN [local area network] environment,” explains Adam Guy, another senior analyst at the Strategis Group. “Kodak just thinks the Bluetooth market is saturated. They’re just trying to get in on the product lifecycle sooner.”

According to Wurzburg: “There are things that Bluetooth does well, and there are things that we do well.” He says, for example, that Bluetooth works fine for low-speed “synching” between devices but can’t possibly reach speeds needed to transfer large files or promote multimedia streaming.

More challenges

Even more challenging could be the potential application of Appairent’s technologies to 3G broadband wireless networks, which would enable fast image transfers between cell phones and other wireless devices. “3G technology is going to need to be there to extend this to a wide area,” says Scott Snyder, president and chief technical officer of OmniChoice, an Internet services and software company. “That’s going to be a long time.” Furthermore, wireless networks won’t likely approach such high speeds for years, if ever. For that, experts say Appairent would have to examine such “4G” technologies as Orthogonal Frequency Division Multiple Access (OFDMA) before even contemplating a migration of its short-range speeds to wider networks. “That’s 10 to 20 megabits per second, but that’s way out there,” he says.

Of course, Appairent’s technology could be a key application that wireless carriers need to justify the expense of building out 3G networks. “If I’m a wireless provider, I’m happy about this [spin-out of Appairent],” says Snyder. “I’ve spent billions on 3G licenses, and I’ve been waiting for something like this.” Indications are that wireless carriers are interested in combining such “Wi-Fi” technology into new devices so that consumers can switch to a speedy short-range wireless network when sitting at, say, a coffee shop or an airport.

Just in November, Deutsche Telekom subsidiary Voicestream agreed to buy the assets of bankrupt MobileStar Network Corp., a Richardson, Tex.-based firm that has been building a national wireless network using 802.11b technology, most notably at Starbucks coffee shops. In addition, major wireless carrier Sprint has reportedly expressed interest in becoming a member of the Wireless Ethernet Compatibility Alliance, which certifies interoperability and promotes adoption of 802.11-based (Wi-Fi) products.

But others caution that while Appairent’s technology may help convince users to use 3G services, it’s not a panacea. “I don’t know if it’s enough to drive 3G on its own,” says Stephen Jacobs, assistant professor of information technology at the Rochester Institute of Technology. Furthermore, few experts expect wireless carriers to start building out networks to enable multimedia streaming and image transfers over long distances. “I don’t foresee providers putting access points everywhere,” says Loredo. “I see them as complementing, but not as true competition to WANs.”

Wurzburg agrees that carriers would most likely build Appairent’s short-range technology into new devices rather than try to apply it across wide areas. “We’re not focused, at least initially, on the cellular wireless applications,” he says. “There’s nothing we need to pay attention to for several years there.”

Other opportunities

In the meantime, short-range applications could also find lucrative niches in the commercial sector. Hospitals and physicians, for example, could more easily transfer X-Rays and MRIs between computers and even portable laptops and handhelds without hooking up wires everywhere they go. “One place this could be a huge win is in the medical field,” says Jacobs. In that case, Appairent could even partner with software providers to produce applications designed narrowly for specific transfers. “Maybe if Doctor Bob has a dedicated X-Ray reader and [Appairent] could sell hospitals on it, you could cut out all of the middle-man apps in between,” he says.

Snyder, whose company helps build such software applications for its clients, agrees that Appairent would probably need partners to pull off such a feat. “The only thing they have developed here is a faster pipe,” he says. “They haven’t developed the applications to run on top of that.”

Wurzburg says Appairent will focus initially on consumer electronics devices (which he points out also often end up in offices and other commercial environments) but that firms in the medical and military areas have already approached Appairent about potential ways to work together. “We’re having conversations, but that’s not a focus for us,” he says. “Consumer electronics is the sweet spot.” Furthermore, he notes that interference concerns could help delay the introduction of such technology in hospitals.

In any event, Appairent has made no secret of its ambitions. It may be only a matter of time before major wireless carriers or perhaps wireless application providers come calling to either acquire or take major stakes in the company, which now has only half-dozen employees. “Normally, we anticipate that companies we invest in will be acquired within two to five years,” says DeLeo. “We have no reason not to expect that same timeframe with Appairent.”

In the meantime, the firm could entice investors anxious to get in early or set themselves up for later acquisition — at least partly to gain access to new markets. “The upside of a small company is the nimbleness of it,” says Segil. “But the downside is the lack of market share, distribution, etcetera.” She says the advantage of the spin-off is that Appairent can now function independently while using Kodak’s connections (facilitated through its undisclosed stake in the firm) to gain partners that can help Appairent gain market clout. “Kodak can just pick up the phone and introduce it to some other partners,” she says, noting that Kodak could apply that technique to many of its technologies worthy of being spun out into new companies. “If this becomes a habit, they could diversify into several areas.”

Michael Grebb has previously written for The Industry Standard, Business 2.0, and eCompany. From Washington DC, he covers the impact of mobile technology on modern society.